We note that from time to time letters of guarantee (so-called “Letters of Indemnity” or “LOIs”) are being presented to our members to accept certain cargo risks against an indemnity from, for example, the shipper.
We would like to inform our members about the risks in accepting so-called Rain Letters and “LOI’s for issuance of Clean Bills of Lading”:
- Rain letters: A common type of guarantee letter is the so-called “Rain letter” in which the charterer or cargo interests request the Carrier to continue cargo operations during rain, snowfall or other forms of precipitation.
It goes without saying that the carrier must ask itself whether this could cause cargo damage and, if so, will have to refuse the request. Consulting the NNPC in such cases is advisable.
- LOI for issuance of Clean Bills of Lading:
In assessing such requests, the carrier will need to take into account that the buyer of the cargo is entitled to demand that the cargo be received in the same condition as described on the bill of lading. Furthermore, recourse under such LOI’s is mostly not possible because a large number of jurisdications, including the UK, does not recognize such letters of guarantee as legally valid. The reason for this is that such an LOI is seen as a fraudulent document because the condition of the cargo is deliberately stated incorrectly.
We advise our members to make a proper assessment in advance of the risks involved in accepting such letters of guarantee. In addition, we would like to point out to our members that claims relating to damage to cargo are excluded from cover if such damage was already known at the time of loading and if the bill of lading does not contain any appropriate remarks in this respect.
We trust that we have provided our members with sufficient information. If our members have any questions regarding this subject they can contact us at email@example.com.